Megan McArdle: What is bitcoin good for?

In an essay this week at Bloomberg News asking "What Is Bitcoin Good For?," financial writer Megan McArdle argues that it is either money itself or a payments system but has big problems as both.

"If bitcoin is a payments system," McArdle writes, "it will compete with Visa, or PayPal, or bank settlement, or some other system of moving money hither and yon. If it is money, it will compete with the dollar and the euro and the yen.

... Dispatch continues below ...

ADVERTISEMENT

Goldco Is America's No. 1 Gold IRA Provider

Goldco Precious Metals was founded by Trevor Gerszt in 2006 with a mission to help Americans protect their retirement accounts from market volatility and inflation by adding precious metals like gold and silver.

Experts predict that we are headed toward another economic crash like the one in 2008. If you aren't prepared, your retirement savings could vanish. At Goldco we take the time to understand our customers' investment goals and objectives and give them the resources to feel confident that their money will be there for them when they need it.

"Bitcoin's future as a payment system is more plausible, because it would not need to dethrone other currencies, something that the governments that run those currencies are apt to get rather testy about.

"But if you think bitcoin is a payments system, you quickly run into a few problems.

"The first is that bitcoin has severe scaling problems. It is designed for transactions to take 10 minutes to clear (a modern miracle, but those of us used to the modern miracle of debit cards are probably not willing to stand at the grocery checkout queue for 10 minutes after our groceries are bagged). And its overall architecture means it simply can't clear very many transactions -- a tiny fraction of what Visa and Mastercard handle every day. Already people are complaining about rising fees and longer wait times for payments to clear.

"For bitcoin to compete as a payment system, it has to offer the same benefits that Visa does: rapid transfers of funds, immense scale, protection against theft (in the United States at least), and the ability to dispute charges, all at a reasonably low transaction fee. Otherwise, it has to be better at something than Visa is. The only area where it can really be said to better than a credit card lies in the privacy.

"But I've yet to see evidence that people other than current bitcoin enthusiasts actually value privacy all that highly. I doubt they value it enough to support current bitcoin valuations. So bitcoin is going to have to deliver on some of Visa's other advantages. There's no sign it can. Which makes it hard to see how bitcoin-as-payment-system can justify current valuations."